Its is quite a coincidence that my last blog post written eons ago confidently stated that "this too shall pass" referring obviously to the "temporary" storm in a tea cup that the markets were facing then.
I stand corrected or rather proven brilliantly wrong with the demise of Lehman bros, the culmination of a lengthly series of e vents that started so spectacularly by the invention of Mortgage backed securities by Lehman itself ! Well maybe they did not invent it, Fannie Mae might be staring hard at me, but they definitely gave it the edification that made it the darling of Wall Street in the past decade. Infact conservative organisations like Credit Suisse too fell for the guiles of MBS !
So the chickens have finally come home to roost !
It is funny that the entire episode was trigerred by ONE man ! YES it is true ... his name is ... well maybe it is too scandalous. Or maybe you just want to know. Well anyway, his name is John Doe* (name changed upon request) I found it hard to comprehend that 2 falls ago when the September housing figures showed a slowdown in the housing market, some people started sounding out the alarm bells. How could John Doe's default or Jane Doe's refusal to buy a house affect the largest, the most powerful economy on the planet so bad ?
John Doe, well he overleveraged his housing loan since he was told by his loan agent that housing prices shall ALWAYS go up !
So John defaulted on his loan (well actually he wasn't eligible for the loan at first place, but thats another story) and the bank which gave him the loan (on the assumption that ... well .... doesnt matter if John doesn't repay, housing prices are going up anyways !) found themselves in a spot of bother.
The sequence of events is beautifully captured (with a dash of wit and humor) in a great ppt that I will try to attach.Download Presentation1.pps I don't remember who sent me the ppt, and I claim no IP over it, but it sure is funny ! not to mention the fact that it can teach a fifth grader all about Sub-prime ! The dirtiest word on Wall Street since Teddy Roosevelt and Glass-Stegall. Now assuming that you are smarter than a fifth grader, I am sure you will enjoy the ppt.
Let me know your thoughts !
Comments